Does Rent Control Help the Poor?

Here is a comment I left on David Henderson’s Econlog post “Misallocation Under Rent Control”:

RentControl and jon write:

“What critics of rent controls are missing is this: Even if rent control is a bad idea, the market left alone by itself will not provide cheap housing to people who have low or no incomes. Markets only serve people who have income levels that allow them to participate in the market.”

This is incorrect. If I may paraphrase Don Boudreaux’s general response on this at Cafe Hayek, there are no price ceilings on lots of goods, from food to clothing to automobiles, and yet the market provides these for all, both rich and poor. There is no reason to think housing is much different.

Besides, rent control doesn’t guarantee that there will be suddenly affordable housing everywhere. As both David and Don point out, the competition only becomes fiercer for what units are available. If anything, rent control reduces the available units to the poor compared to a period absent price controls. After all, as you say the price of rent must be high enough to encourage building. In order to be effective, the price ceiling must be lower than the equilibrium price. Given that, it is no longer effective for builders to build and renters to rent. Therefore, the quantity supplied drops and housing becomes even more scarce.

Compare this to a period where rents are allowed to signal relative scarcity in a market. If rents are relatively high, this means there is a relative scarcity of housing units in the market and it signals to builders and landlords that more options are needed. Builders come in, build new units, and landlords rent them out. As the supply in the market increases, the rent falls, making it easier for those with lower incomes to rent. Conversely, when the rent is relatively low, that signals to builders and landlords there is a relative abundance in the market and that additional units are not necessary.

In accordance with my last sentence, rent control sends the persistent signal that there is a relative abundance of housing in the market and therefore no (or few) new units are needed. This is the last thing you’d want in a market if you’re trying to help the poor.

If the goal is to help the poor, the worst possible thing one can do is limit supply.

13 thoughts on “Does Rent Control Help the Poor?

  1. this is a rather abstract argument; a more practical one might be better. if there were not rent controls in manhattan, would the poor likely be able to live in manhattan? it is certainly possible, but not likely. They would likely be able to live in the outer areas of queens, the bronx, and brooklyn, which is fine. although the one to two hour commute and a much more dangerous area. so yes: the market would provide housing (somewhere). does that housing put them at an inherent disadvantage, i have no idea.

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      • 1) Individuals with less income might want to live in Manhattan because: 1) they don’t want to commute two to three hours per day; and 2) they want their kids to go to better schools.

        2) Please note: I am not making a prescriptive argument, I am only making a positive one. So, yes, without rent controls probably not. I am not advocating for it- I am merely describing the other side of the argument.

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        • But, you can easily see the fault in those arguments. The commute time is why so many people are willing to pay more to find housing in Manhattan. By subsidizing the poor person who does want to commute, you are using tax dollars to further limit the supply of housing to the non-poor, thus forcing more of them to endure the commute. And, it is the same issue with schools. So, you are interfering with the price mechanism so government can determine the winners and the losers.

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    • if there were not rent controls in manhattan, would the poor likely be able to live in manhattan? it is certainly possible, but not likely

      So? I couldn’t afford to live in Manhattan but I don’t believe I have a right to force someone to let me live in Manhattan at prices I can afford.

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  2. Say I head a rock band playing at a 1000 seat venue. I can sell all the seats at $300 each, but I want ordinary people to hear the concert. So, I sell the last 500 seats for $50 each after vetting people according to their W2 employment documents. I want those 500 seats to go to people who would not have bought a $300 ticket.

    Who will actually attend the concert?

    If I am successful at vetting, then the 500 cheap tickets have gone to people who value $300 more than they value the concert. That doesn’t change much because they now have a ticket. If there is some way to sell the ticket for $300, then they would rather have the cash, and there are many others who would rather have the seat and are willing to pay $300 for it.

    I predict that very few of those original 500 will attend. Almost all will have sold their ticket. To get my original desire, I would need layers of enforcement, prosecution, and punishment to prevent resales.

    The problem is worse if this concert happens every year. Systems will develop to make it easier to trade these tickets each year. Ads will appear on bulletin boards. Ironically, I also reduce any financial incentive that I would have for performing two or three times.

    Rent control puts very few apartments into the hands of the poor, but it does arrange for transferring wealth from landlords to tenants as prices rise due to scarcity of available apartments. It also removes most incentive for landlords to build or improve the apartments available.

    Along the way, apartments trade unofficially at the market price regardless of the sticker price.

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      • I don’t know why I would. I am only a stand-in for explaining the concert ticket example. That is a real example, as some bands do that very thing. And, I don’t know why they try to do it.

        The concert example is supposed to illustrate why artificially low ticket prices don’t result in most of those tickets being used by the poor people who bought them. Similarly, artificially low housing prices don’t result in most of those apartments being rented by the targeted poor, unless there is draconian enforcement.

        What does result in both cases, is that a lucky initial group gets a valuable ticket which it can sell in some way to buyers at the market price, while the producers of the concert or apartment get a lower incentive to produce a quality product or any product.

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        • Andrew

          Well you’re right of course. I understand you are a stand-in for a rock band because it’s your story, and you set the initial conditions:

          “Say I head a rock band playing at a 1000 seat venue.”

          Based on that representation I felt comfortable addressing the question to you. 🙂

          Further you wrote:

          “*I* can sell all the seats at $300 each, but *I* want ordinary people to hear the concert.” (emphasis mine)

          ( –whether they want to or not–)

          It seems you are so determined that “ordinary people”: attend the concert, that you are willing to ask them for proof of there humble means before selling them a ticket, and then:

          “*I* would need layers of enforcement, prosecution, and punishment to prevent resales.

          This seems to be all about what YOU want, and not at all about what might benefit ordinary people, or what they might want. Perhaps you can’t imagine anyone valuing ANYTHING more highly than attending a “You” concert.

          I guess my question, then, is: Why would you force people to attend the concert when they would rather have $300?

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          • Ron H,
            Analogies are imprefect. You are caught up in attempting to make the analogy perfectly reflect the realities of rent control.

            If a band wanted to help the poor by distributing cheap tickets to them, then they wouldn’t want those people reselling to the rich. The band could aid that result by restricting resales, trying to dissuade scalpers from buying in the first place and then reselling.

            Rent control advocates definitely want the poor to reside in the controlled apartments. Their aim is not officially to distribute re-rent rights to poor tenants. But, the lucky renters find ways to re-rent and collect the premiums. Rent control requires people to prove that they are poor enough. That isn’t my personal idea.

            Your comment about ME personally wanting people to attend MY concerts because it is all about ME is funny. It is an example. For your benefit, mentally substitute a fictitious “Fred” for “my” and “I” and it may make more sense to you.

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  3. Andrew

    Apparently we are talking past each other and you seem to be missing my point. I’ll leave it at that. It’s not important enough to pursue.

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